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Informist, Tuesday, Apr. 15, 2025

By Vidhushi RajPurohit 

MUMBAI – Borrowing costs in the call money market remained below the Reserve Bank of India's repo rate of 6.00% Tuesday due to ample liquidity in the banking system, dealers said. Volumes in the triparty repo market stayed high as some banks took advantage of the arbitrage between the low rates in the triparty repo market, which is around 5.50%, and the RBI's Standing Deposit Facility rate of 5.75%. 

The one-day interbank call money rate ended at 5.60%, while the weighted average rate was 5.84%. In a sign of improved liquidity and reduced need for funds, the call rate did not rise above 5.95% Tuesday, unlike last week.    

"Banks are in a very comfortable position and now there is no room for doubt that the RBI is going to remain active to make sure that surplus does not go anywhere," a dealer at a private bank said. "The reason for good volumes in TREPs (triparty repo) market is that banks are playing on arbitrage and borrowing when the rates dip and then parking at SDF (Standing Deposit Facility)."

The RBI is set to inject INR 2.30 trillion into the banking system with a long-term variable rate repo auction and three scheduled open market operations auctions of government bonds this month. Monday, the central bank's net liquidity absorbed from the banking system –- a proxy for the liquidity surplus –- was INR 1.65 trillion, with banks parking INR 1.39 trillion at the RBI's Standing Deposit Facility. 

As money market rates remained around 5.50% for most of the day, some banks borrowed funds from triparty repos and parked these with the RBI at 5.75% at its Standing Deposit Facility. This would give these banks a clear spread of 20 basis points between the two, dealers said.  

Owing to comfortable funds and lower borrowing rates in the money market, banks and primary dealerships borrowed only INR 95.64 billion at the overnight variable rate repo auction, much lower than the notified amount of INR 250.00 billion. The central bank set the cut-off at 6.01%, just above the repo rate floor.

OUTLOOK

* Wednesday, the one-day call rate may open below the repo rate due to low demand for funds from banks as liquidity remains comfortable.

* During the day, the call rate is seen at 5.80-6.00% and the triparty repo rate at 5.75-5.90%.

* RBI to hold overnight variable rate repo auction for INR 250 bln 1000-1030 IST.  

CALL RATE

5.60%--Tuesday's close for one-day loans

5.95%--Tuesday's open for one-day loans

5.62%--Friday's close for four-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; RBI's OMO auction notice buoys sentiment

MUMBAI – The interbank call money rate was just below the Reserve Bank of India's repo rate of 6.00% Tuesday due to demand for funds from banks in early trade to meet their reserve requirements, dealers said. The systemic liquidity remains in adequate surplus as the central bank continues to inject funds into the banking system with its daily and long-term variable rate repo auctions.

At 0930 IST, the one-day call rate was at 5.90%, with the weighted average rate also below the repo rate at 5.93%. The weighted average rate in the larger tri-party repo market, which includes mutual funds, was at 5.71%, lower than the RBI's Standing Deposit Facility rate of 5.75%. According to dealers, borrowing rates might soften further owing to lack of major outflows during the day.

On Friday, after market hours, the RBI announced two variable rate repo auctions. Along with the usual overnight repo auction for INR 250 billion Tuesday, the central bank also announced a 43-day repo auction for INR 1.50 trillion, which is scheduled for Thursday. Some dealers said the long-term repo auction was announced by the RBI to maintain adequate surplus in the banking system until the next Monetary Policy Committee meeting, which is scheduled for June, and also to ensure there is smooth transmission of its rate cuts to the wider financial system. 

"The RBI's continuous measures look like the central bank wants there to be no panic in the banking system with regard to liquidity, and that is also in line with what the governor said regarding keeping liquidity in 1% of NDTL," a dealer at a state-owned bank said. "There are now high chances that there will be more rate cuts this year."

Systemic liquidity will improve further after the central bank buys INR 400 billion of gilts Thursday. Some dealers expect the RBI will likely inject around INR 2.50 trillion of liquidity in 2025-26 (Apr-Mar), apart from the 50-75 basis points of rate cuts in the year. 

In the Monetary Policy Committee decision announcement Wednesday, RBI Governor Sanjay Malhotra said the central bank will continue to provide sufficient liquidity such that the surplus is at 1% of banks' net demand and time liabilities. According to the latest RBI data, banks' deposits were INR 225.75 trillion on Mar. 21, while the central bank's net liquidity absorbed from the banking system –- a proxy for the liquidity surplus –- was INR 1.69 trillion Friday. This is around 0.75% of banks' net demand and time liabilities. Banks' deposits are a proxy for their net demand and time liabilities. (Vidhushi RajPurohit)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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